Investing in the US market: At this point, should you place your bet on gold or US Treasury bonds?

 Investing in the US market: At this point, should you place your bet on gold or US Treasury bonds?

The yield on the 10-year Treasury note reached 5.5%, the most since 2007, while the yield on the two-year Treasury note reached 5.25 percent, the highest since 2000.

SUMMARY One of the things causing tougher bond rates is more government borrowing.

Any increase in interest rates is severely pressured by rising yields.

The US Federal Reserve did raise interest rates by 500 basis points over the previous 18 months.

The yield on US Treasury bonds increased dramatically in October. The yield on the 10-year note reached 5%, the highest level since 2007, while the yield on the two-year note reached 5.25%, the highest level since 2000.   

The yield on the US 10-year bond has risen from 1.01 percent in 2020 to around 400 basis points. Bond yields have recently tightened due to a number of variables, including rising crude oil prices, inflation risk, and indications from the US Federal Reserve about higher interest rates on loans, according to Vaibhav Kaushik, Research Analyst at GCL Broking.  

Harder bond rates are also a result of high government borrowing. The US 10-year yield continued to rise due to fears of sustained high interest rates. Furthermore, the Fed is expected to maintain higher interest rates for an extended period of time due to positive US economic indicators. Investors are also concerned about the impending huge government borrowing programs.  

Stronger-than-expected figures on US retail sales, the labor market, and inflation during the last 18 months have somewhat offset the US Fed's interest rate rise of 500 basis points. High yields indicate that inflation will continue to be persistently high and that interest rates will either rise or stay the same.   

The U.S. Federal Reserve has raised interest rates by about 500 basis points since May 2022, from 0.25–0.50 no ioh to b

 percent to the present range of 5.25–5.50 percent. In other words, rising yields greatly pressure any increase in interest rates. The growing differences in return between bank fixed deposits and state guaranteed bonds is another factor contributing to this money flight. Therefore, the bond market reflects the anticipated rise in interest rates by investors, according to Kaushik.  

How may gold and US bonds be purchased? Exchange-traded funds (ETFs) are a kind of investing vehicle that, like mutual funds, combine the money of many individuals to purchase bonds, stocks, and other assets. Indian investors have access to a wide range of ETF alternatives that target the US market.  

"Resident Indians looking to make investments abroad need to keep in mind that such transactions shall fall within the purview of RBI's Liberalized Remittance Scheme (LRS) and accordingly the minimum threshold of $250,000 per financial year shall be applicable to them," stated Suresh Surana, the founder of RSM India. On the other hand, investors will be liable to TCS under I.T. Act § 206C(1G) @ 20% on any amount remitted over Rs 7 lakh (effective October 1, 2023). The credit for such TCS will appear on Form 26AS and be available for the Individual to claim as prepaid taxes against their taxable income when they file their tax return.  

Indian investors must register a trading account and demat account with a brokerage company that grants access to U.S. stock markets in order to start investing in American companies via ETFs. Indian investors may invest in US equities and exchange-traded funds (ETFs) using a variety of mobile apps that provide a user-friendly and simple platform for managing their portfolios.  

Investors may look for US-based ETFs that match their investing objectives and risk tolerance after creating an account. ETFs may be purchased and sold, much like shares, and usually cost less in transaction costs than mutual funds.  

The US Treasury Bonds Fund of Funds, recently introduced by Aditya Birla Mutual Fund, enables mutual fund investors to purchase US ETFs. The mutual fund handles the regulatory filings, which are not capped by the LRS. Nonetheless, there is a $1 billion overall cap and a $250 million industry restriction. Investing directly abroad is an additional strategy. However, it has its own restrictions.

Is it better to invest in gold or U.S. Treasury bonds?  The Federal Open Market Committee (FOMC) is expected to pause interest rates next week, according to analysts, as there is less need for more rate rises in light of the recent increase in Treasury yields. In view of these latest comments and developments in the bond market, it seems that the FOMC is stopped hiking rates. 

It makes sense to buy in US Treasuries, according to several analysts, who think the Federal Reserve is about to reach its peak interest rate. It is important to note, nevertheless, that Indian investors are not permitted to directly acquire US Treasury bonds. They could, however, use exchange-traded funds (ETFs) that are openly traded to buy US Treasury bonds. Treasury ETFs provide investors with passive exposure to US government bonds.   

When it comes to investing, experts state that gold is not as volatile as other asset classes like stocks, mutual funds, and so on. Instead, gold produces profits even in the event of a stock market meltdown and might be a useful diversification tool. "Given its reputation as a low-risk, secure investment and inflation hedge, gold is an ideal addition to a well-rounded portfolio. But selecting whether to buy gold would rely on a number of variables, including investing objectives, risk tolerance, anticipated profits, investment time horizon, etc.,” stated Surana.  

"In the future, the primary emphasis will be on the timing and quantity of the first-rate cut. Given the uncertainty surrounding the Fed's future policies and the rising global tensions, gold has a bright short-term outlook. Investors will likely continue to pour money into this safe-haven gold until there is more confidence on both fronts, according to Renisha Chainani, Head of Research at Augmont Gold for All.  

On the other hand, investors who fear losing their capital gains due to rising interest rates sell the bond before it matures. Debt investors will also be impacted by this increase in rates.  

Chainani said, "Mortgage rates are going up because of the yield curve expansion, which hurts banks and investment funds just as much as it does borrowers. Bank lending to the economy may decline as a result of this. Treasury ETFs consist of a basket of treasury securities and might be focused on a particular maturity or a range of maturities. These ETFs provide you the same trading freedom as exchange-traded equities. Moreover, unlike Treasury bonds, Treasury ETFs never expire. Any given time, bonds with different maturities will be a part of a Treasury ETF. Treasury ETFs routinely rebalance their bond holdings by purchasing new bonds, and they pay interest in the form of a monthly dividend.